THE CONCEPTS OF FIT AND FLEXIBILITY IN THE STRATEGIC

HUMAN RESOURCE MANAGEMENT IN ORDER TO ATTAIN

SUSTAINABLE COMPETITIVE ADVANTAGE
Elizabeta Tosheva, PhD
University St. Clement Ohridski
"Faculty of law" Kichevo, Republic of Macedonia;
elizabeta.tosheva@uklo.edu.mk

ABSTRACT

The purpose of this paper is to point out of the ways in which the strategic human
resource management (SHRM) can create a sustainable competitive advantage if it
achieves two essential goals: organizational flexibility (both resource and coordination
flexibility) and fit (both external and internal). In order to do so, we present a framework
that provides a theoretical foundation for understanding the strategic role of human
resources in organizations through both: fitting important aspects of the HR system to the
strategic needs of the firm and building these components to enable flexible response to a
variety of strategic requirements.
First, the paper will examine the concepts of fit and flexibility and their relationship
with one another. An important aspect of the strategic HRM is the concept of fit or
integration. Strategic HRM is an asset for linking HRM with strategic business content.
HR strategy should be linked to the business strategy (vertical integration), mainly because
of their mutual replenishment and support in the definition, in order to serve as a basis in
the business planning process. Horizontal integration (linking various HR strategies in a
unit) aims to achieve a coherent approach in managing people, where different practices
are mutually supportive. Researchers in the area of strategic HRM emphasize that in the
current complex and dynamic environment, organizations require flexibility to adapt to the
diverse and changing requirements.
At a first sight, it may seem that the desire for strategic fit and the need for
organizational flexibility are in the conflict. Indeed, although the relationship between fit
and flexibility in the context of the strategic HRM is not well understood, there is little
understanding as to the definition and value of each of them.
Based on this work, we propose a model of strategic HRM, which includes both fit
and flexibility components. These assumptions about the model suggest difficulty for its
achievement, which actually represents the only way in which firms can achieve
competitive advantage. Considering that sustainable competitive advantage results from
resources and capabilities that are considered valuable, rare, irreplaceable and difficult to
imitate, thus achieving fit is difficult due changes in environment. Especially for firms that
operating in unstable competitive environments, developing ability for flexibly achieving
fit with constantly changing strategic needs represents a huge strategic asset.
Strategic HRM should simultaneously promote fit and flexibility and should
represent a constant demand of the ways in which the unique firm's resources should be
used at the right time to respond to the changing environment. The achievement of these
goals at the same time allows the origination of a dynamic fit, able to create a firm that
renews itself, and at the same time, it gives to firm fast response ability to environmental
requests.
Keywords: strategic HRM, organizational flexibility, external fit, internal fit, sustainable
competitive advantage

INTRODUCTION

Todays fast, changing domestic and global competitive landscape had forced
companies to examine all resources at their disposal in order to gain competitive advantage
(Barney, 1991; Hamel and Prahalad, 1994). Not surprisingly, attention to the competitive
potential of the employees or human resources has increased substantially (Huselid, 1995;
Lado & Wilson, 1984; Miles & Snow, 1984; Schuler & MacMillan, 1984; Wright,
McMahan, & McWilliams, 1994).
The field of strategic HRM focuses specifically on the role of human resources in
improving firm performances or competitive advantage. Strategic HRM is defined as the
pattern of planned activities for human resources that enable the organization to achieve its
goals (Wright, McMahan, 1996). This focus highlights two types of match or fit. First,
vertical fit includes connections of HRM practices with the organization's strategic
management process (Schuler & Jackson, 1987). Second, horizontal fit implies congruence
among the various HRM practices (Baird & Meshoulam, 1988). Vertical fit represents
observation of human resources through the primary initiatives of the organization, while
achieving horizontal fit is seen as an instrument for the efficient allocation of those
resources.
Despite the previous discussions of fit, researchers in the area of strategic HRM
increasingly emphasize the concept of flexibility (Lengnick-Hall, 1988; Milliman, Von
Glinow, & Nathan, 1991). They advocate that organizations face with the complex and
dynamic environment that requires flexibility to adapt to the different and increased
requirements (Snow, Snell 1995). From this perspective, strategic HRM is primarily
concerned with developing the organizational capability to adapt to changing
environmental contingencies (Snell, Youndt & Wright, 1996).
At a first sight, it might appear that the desirability of strategic fit and the need for
organizational flexibility are in conflict. Indeed, although the relationship between fit and
flexibility in the context of the strategic HRM is not well understood, there is little
understanding as to the definition and value of each of them. We present a framework,
which provides a theoretical foundation for understanding the strategic role of human
resources in organizations through both fitting important aspects of the HR system to the
strategic needs of the firm and building these components to enable flexible response to a
variety of strategic requirements.

ACHIVEING STRATEGIC FIT

The concept of fit has a number of theories of individual, group and organizational
level of analysis. It represents the degree in which the needs, demands, goals, intentions
and/or structure of one component are consistent with the needs, demands, goals,
intentions or structure of the other component. In numerous definitions of fit is the premise
that organizations are more efficient and/or effective when there is a fit, than if it does not
exist.
The concept of strategic HRM has two dimensions:
1. Vertical - which emphasizes the connection between HRM practices and
strategic management process in the company;
 2. Horizontal - that emphasizes the need for high coordination and harmonization
between different sub functions of human resources management.
a) Achieving vertical fit - integrating business strategy with HRM strategies
In the order to achieve vertical integration in the process of HRM strategy
formulating is necessary to take into account the business strategy, and vice versa. When
placing these links should not neglect the fact that strategies are subject of change, mainly
because of the changes in internal and external environment. Congruence between
strategies can exist in one moment in time, but due to changing circumstances, it
disappears. Exceptional existence of fit would mean maintaining status qwo and it would
affect the flexibility of the approach, which is an important component in the turbulent
environment. An additional factor that complicates achieving good vertical matching is the
existence of vaguely defined strategy or if the strategy is in a state of evolution. However,
it is important to understand the direction in which the organization is moving, although it
hasnt been expressed in the formal strategic plan. All organizations define their strategies
in the form of intents that although difficult to formulate are subject to change.
b) Achieving horizontal fit
Horizontal fit is achieved when the various HR strategies are coherent and mutually
supporting. The process of bundling or configuration that is driven by the needs and
characteristics of the business may attain this. The required steps are as follows:
1. Analyse the needs of the business and its characteristics;
2. Assess how HR strategy can help to meet the business needs and also be
congruent with the business characteristics;
3. Identify the capabilites and behaviours required from employees in order to
make a full contribution to the achievement of stategic goals;
4. Assesss the efectiveness of existing HR practices and the need for change;
5. Analyse the scope for linking the various practices together as a bundle, so that
they become mutually reinforcing and therefore coherent;
6. Formulate programmes for development of these practices, paying particular
attention to the links between them.
Both dimensions are equally important and necessary for achieving successful
strategic HRM. This means that it is not necessary only its strong, two-way connection
with the business strategy, but also a high internal harmonization and consistency of
recruitment, selection, assessment of success and motivation, development and education,
and other activities of the HRM that must involve the same strategic dimension for mutual
replacement and reinforcement.
In the previous discussion, we emphasized that achieving fit requires:
1) Knowledge of the skills and behaviors necessary for the strategy
implementation,
2) Knowledge of human resource management practices necessary to extract the
those skills and behaviors, and
3) Ability for quickly implementation of desired system of human resource
management practices (Wright, P.M and Snell, S.A, 1998).
These assumptions about the model of fit suggest difficulty for its achievement,
which actually represents the only way in which firms can achieve competitive advantage.
Considering that sustainable competitive advantage results from resources and capabilities
that are considered valuable, rare, irreplaceable and difficult to imitate, thus achieving fit is
difficult due changes in environment. Especially for firms that operating in unstable
competitive environments, developing ability for flexibly achieving fit with constantly
changing strategic needs represents a huge strategic asset.
 ACHIEVING STRATEGIC FLEHIBILITY

HR flexibility emerges as a key aspect in organizations operating in uncertain

environments and whose efforts are oriented towards development of rapid and diverse
responses. Flexibility is defined as the firm's ability for quick reconfiguration of resources
and activities to meet the environmental requirements through hiring people according to
their potential to create value (Snow & Snell, 1993). Flexibility is forcing companies to
reveal the changes in the environment and to maintain a sufficient number of new
activities, which will enable adaption to those changes. Highly flexible firms are those who
possess capacity to scan the environment, to evaluate markets and competitors and quickly
transform in accordance with the competing demands.
Flexibility in strategic HRM is shown as a degree in which companies human
resources possess skills and repertoire of behaviors that would give the company the
opportunity for the implementation of the strategic alternatives in the firm's competitive
environment, as well as the degree in which they might identify, develop and quickly
implement the necessary HRM practices in order to maximize the flexibility, inherent for
those human resources (Wright and Snell (1998).
We believe that primary task of strategic HRM is to promote the fit in accordance
with the requirements of the competitive environment. In stable, predictable environments,
organizations can operate effectively with the use of bureaucratic systems and focus on the
development of the mass of human capital with a limited range of skills and human
resource systems that will extract desired behaviors from that rank of skills. In the dynamic
unpredictable environments, organizations achieve flexibility using organic systems for
human resources; promote development of a wide range of skills that they might use for
different types of behaviors. In such case, when fit is achieved, flexibility becomes
relatively unimportant, because the environment does not change.
However, many companies are faced with environments that are characterized by
pronounced dynamism and competition. In such case, a satisfactory match can be achieved
by developing flexible organization. Therefore, the strategic HRM increasingly promotes
organizational flexibility in order for firms to achieve dynamic match.
In the literature of strategic HRM is widely recognized the need for flexibility in a
framework that focuses on three aspects of flexibility:
- Development of human resources systems that can be quickly adjusted;
- Development of a mass of human capital with a wide range of skills;
- Promoting behavioral flexibility among employees.
There are two basic types of flexibility: resource flexibility and coordination
flexibility. Resource flexibility refers to the extent to which the firm's resources can be
applied in a wider range of alternative uses, the cost and difficulty of modifying the usage
of the resources from one alternative user to another, as well as the time required for the
change of their usage. Coordination flexibility consists of the extent to which the
companies can re-synthesize strategy, reconfigure chain of the resources and redevelop
those resources again. These two types are particularly applicable in the studying of the
concept of flexibility in the strategic HRM.
Researchers of the field of strategic HRM have proven that there should be a match
of three generic conceptual variables, as follows: 1. HRM practices 2. Employee skills and
3. Employee behaviors (Shuler Jackson, 1987).
1. The companies have menu of HRM practices at their disposal; different firms
strategies require different roles and behaviors of employees, therefore, firms
choose those HRM practices, based on their ability to drawn necessary
 behaviors for the implementation of the chosen strategy. Then, differences in
HRM practices appear depending on whether firm is a defender, striker etc.,
while the firm's chosen strategy and leadership strategy (cost reduction, growth
and so on.) would influence the choice of set of HRM practices. In order to
harmonize HRM practices with the selected strategy, strategic HRM managers
must complete knowledge, skills and abilities required for the implementation
of the strategy, as well as the specific practices for HRM that will develop these
skills necessary to extract desired behaviors (Cappeli & Singh, 1992).
2. There should be a match between the firm's strategy and the skills and
characteristics of different employees in order to achieve effective performance.
The extent to which workforce possesses a variety of skills (both resource and
coordination flexibility), increases the firm's overall flexibility.
3. Some researchers have proposed the existence of a fit between the firm's
strategy and the types of behaviors shown by employees. The basic premise
behind behavioral perspective is that different strategies require differ roles and
behaviors of the employees. Employees who possess a variety of behavioral
scenarios and are encouraged to apply in the different situations rather than to
follow standard operating procedures, increase the likelihood of a firm to
identify new competitive situations and respond appropriately. The extent to
which employees have wide ranges of behavioral scenarios (resource
flexibility) and systems that unite these scenarios (coordination flexibility)
increases the overall flexibility of the firm.

FIT OR FLEXIBILITY

In the literature of strategic HRM are two types of links between fit and flexibility.
The first is orthogonal approach - which representatives agree that fit and flexibility are
two opposite ends of the same continuum. E.g. maximizing of the fit can be
counterproductive, if organizational change is needed or if the firm adapts otherwise to the
competitive conditions, to respond to the complex competitive environment. Therefore,
although they do not suggest a negative relationship between fit and the flexibility, these
authors imply that these two cannot exist simultaneously.
Supporters of the second, complementary approach believe that these two
variables are independent one from another. These two concepts are important for
organizational effectiveness, because the challenge of strategic HRM is to deal with the
choices that require flexibility, with the continuous adaptation in achieving fit between
firm and its external environment (Miles & Snow, 1984). While proponents of the first
approach consider firm at a particular point of time and explain what firms actually do,
supporters of the complementary view observe firm for a longer period of time, where
examined the process of adaptation and explained what firms should do.
We believe that fit and flexibility are complementary; primary because they focus
on different aspects of the organization. Some perceive fit as a condition, since it exists at a
certain point time and focuses on the relationship between two variables that have internal
(related aspects with the human resources) and external (strategic) components. Flexibility
is not a temporary situation, but a current characteristic of organization, such as ability to
deal with the different needs of the dynamic environment. Unlike fit, it is purely internal
feature that makes it possible for a number of characteristics of the firm as a broad,
heterogeneous mass of skills and competencies of the workforce, administrative systems
that enables the organization to adapt to the changing environment.
 FIT, FLEXIBILITY AND COMPETITIVE ADVANTAGE

Previous analysis shows the way in which strategic HRM contribute to the
competitive advantage of the company: it can play an integral role in determining
organizational flexibility. Key tasks of strategic HRM is to provide matching between the
sum of strategic important variables, which simultaneously take care to build generic
organizational capacity that can be applied through detection and implementation of a set
of various strategic initiatives.
Strategic HRM should promote fit and flexibility simultaneously. Systemic aspects
of HRM are important because they highlight the fact that the company posses multiple
practices. Thus, some of them promote fit; the others promote flexibility, while others
promote both. We recognize the importance of developing and implementing practices that
promote fit. For example, if the company needs a higher level of consumer service you will
develop a selection tests where through role playing and interviews will provide employees
by skills that provide customer service, training programs will provide further developing
of those skills and appraisal and remuneration systems are about to reward employee
behaviors.
In addition, some human resource management practices will promote the
flexibility in the firm, by developing a wide range of employee skills and repertoires of
behavior. These practices for HRM provide maximum efficiency when form bundles of
participatory working systems that will enable the employees with the possibility to
contribute with their behavior to the organizational goals (MacDuffie, 1995; Wright,
McCormick, Sherman, & McMahan, 1995).
The goal is to achieve coherence and that means accepting holistic approach that
neither activity should be considered in isolation. Namely, it is necessary to seek
opportunities to create synergy, by finding ways in which one practice can support the
other in order to identify common requirements that can be met by activities in different
areas of HR practices, as long as they are interconnected. We can see that from examples
given in Table 1.

Table 1.
LINKING HR AND COMPETITIVE STRATEGIES

Competitive Human resource management strategy

Strategy Resourcing Human resource Reward
development
Achieving competitive Recruit and retain high Develop strategic Provide financial
advantage through quality people with capability and provide incentives and
innovation innovative skills and a encouragement and rewards and
good track record in facilities for enhancing recognition for
innovation innovative skills and the successful
intellectual capital of the innovations
organization
Achieving competitive Use sophisticated selection
advantage through procedures to recruit
quality people who are likely to
deliver quality and high
levels of customer service
Encourage the Link rewards to
development of a quality performance
learning organization, and the
develop and implement achievement of
knowledge management high standards of
processes, support total customer service
quality and customer
care initiatives with
focused training

Achieving competitive Develop core employment
advantage through cost structures; recruit people
leadership who are likely to add
value; if unavoidable, plan
and manage downsizing
humanely
Provide training Review all reward
designed to improve practices to ensure
productivity; inaugurate that they provide
just-in- time training value for money
which is closely linked to and do not lead to
immediate business unnecessary
needs and can generate expenditure
measurable
improvements in cost-
effectiveness

Achieving competitive Use sophisticated Develop organizational Develop

advantage by employing recruitment and selection learning processes; performance
people who are better procedures based on encourage self-managed management
that those employed by rigorous analysis of the learning through the use process which
competitors special capabilities of personal development enable both
required by the plans as a part of a financial and non-
organization performance financial rewards to
management process be related to
competence and
skills; ensure that
pay levels are
competitive
Source: Revised and adjusted according to the elaborations of: Porter, M. . Competitive Strategy-
Techniques for Analyzing Industries and Competitors, Free Press, NY, (1980); Competitive Advantage-
Creating and Sustaining Superior Performance, Free Press, NY, (1985); Competitive Advantage of Nations,
New York, The Free Press (1990) in Armstrong, Michael (2003), A Handbook of Human Recourse
Management Practice, 9 th edition, Kogan Page, London and Sterling, VA

THE INTEGRATION MODEL OF STRATEGIC HRM

From above mentioned, we conclude that SHRM is no longer only paying attention
to the traditional functions of HRM, but tries to combine HRM with the organizational
goals, environment to investigate their impact on competitive advantage, but there are still
some shortcomings.
The measurement of relevant variables is not accurate enough. Researchers use
different indicators on the same variables, such as organizational performances and
competitive advantage. Some studies adopt financial indicators, while others use
productivity.
SHRM paid more attention to the relationship between HR practices and
organizational performances, but neglected the attitude and behavior of the employees.
Boswell (2000) showed that employees are very important for achieving strategic
objectives and considered that it is important for them to be familiar with the
organizational strategy. Only having HR cannot improve organizational competitive
advantage, it should inspire the enthusiasm of the staff and the fit between their work
objectives and organizational goals. How to recruit staff, how to enhance employees
ability and how to improve employees enthusiasm and job satisfaction is the basis of the
HRM function.
The ingredients of SHRM have not been combined with each other. Although,
Wright (1998, 2001) attempted, but the model was only concerned with one aspect, such as
Wright and Snell (1998) presented a framework for studying the concept of fit and
flexibility. Nevertheless, they were only concerned with the HRM practices fit with the
organizational goals and the coordination of external environment, but neglected the
importance of the role of the staff. Through Wright, Dunford and Snell (2001) were
concerned with the importance of the employees, but they ignored the importance of the
flexibility.
In short, there is necessary to integrate all the variables together to enhance
organizational competitive advantage. Based on above, we propose the integrated model of
SHRM as shown in Figure 1, only by integration of these factors organizations can became
more effective.

Figure 1. An integration model of strategic HRM

flexibility
fit
flexibility

fit fit fit fit fit fit

Participation work design

Performance managment
Career planing
Compensation
Employment

Selection
Recruitment

Training

fit fit fit fit fit fit fit

fit fit fit fit fit fit fit

Taking into account this integrated model of strategic HRM, we conclude the following:
1. The model integrates all the single practices into an effective HRM system. This
system influences the attitude and behavior of the employees, mobilizes their
enthusiasm, is consistent with the organizational goals and thereby enhances
organizational competitive advantage.
2. Strategy and environment will affect the function of HRM and organizational
competitive advantage. HRM system has to adapt to organizational strategies, at the
same time, it also distributes effective HR to achieve strategic objectives and
horizontal and vertical fit between HRM system and strategy. HRM must have
certain flexibility to face the complex external environment. Flexibility focuses on
the cultivation of personal abilities and helps to improve the speed of the external
 environment reflection. Environment will affect HRM system; its change will affect
the organizational HR practices. The fit of HRM system with the strategy is a good
ability to cope with the environmental change and to improve organizational
competitive advantage.
3. Organizational strategy and environment will affect the attitude and behavior of the
staff. Different strategy and environment will affect HR practices, such as
recruitment, training and compensation, as well as HR policy.
4. To achieve overall organizational efficiency, as well as quick and effective local
response, HRM should be linked with the strategy, environment and internal factors
in order to obtain the integration and consistency.

CONCLUSIONS

An important aspect of the strategic HRM is the concept of fit or integration.

Strategic HRM is an asset for linking HRM with strategic business content. HR strategy
should be linked to the business strategy (vertical integration), mainly because of their
mutual complementation and support in the definition, in order to serve as a basis in the
business planning process. Horizontal integration (linking various HR strategies in a unit)
aims to achieve a coherent approach in managing people, where different practices are
mutually supportive.
The matching concept has three aspects: first, integration or cohesion of the HR
policies and practices for their mutual complementation and aid in achieving strategic
objectives; second, internalization of the importance of human resources in the area of line
managers; and third, integration of all workers in the business, because of the emphasis on
commitment or "identity of interests" with their organization. The basic assumption is that
if these forms of integration would be implemented, the workers would have been more
cooperative, flexible and willing to accept change, and therefore organizational strategic
plans would be realized more successfully.
The paper put forward an integrated model of strategic HRM in the hope of
offering a theoretical basis for the organizations to enhance their performances and
competitive advantage through effective human resource management. Strategic HRM
should simultaneously promote fit and flexibility and should represent a constant demand
of the ways in which the unique firm's resources should be used at the right time to respond
to the changing environment.

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